A client approaches you seeking a low-risk investment for a portion of their portfolio. They are considering a bond with a face value of $1,000, a coupon rate of 5% paid semi-annually, and 4 years to maturity. Assuming current market interest rates for similar bonds are 4% compounded semi-annually, what is the fair market price of this bond?

Question: A client approaches you seeking a low-risk investment for a portion of their portfolio. They are considering a bond with a face value of $1,000, a coupon rate of 5% paid semi-annually, and 4 years to maturity. Assuming current market interest rates for similar bonds are 4% compounded semi-annually, what is the fair market price of this bond?

Answer options: ✅ $1,036.29

• $1,033.40
• $1,000.00
• $965.73

Correct answer: $1,036.29

Explanation: To calculate the bond price, discount the semi-annual coupon payments ($25) and the face value ($1,000) at the semi-annual yield (2%) over 8 periods. The sum of the present values is $1,036.29.